Rural reforms coupled with normal monsoon forecast amidst fall in interest rates are expected to support growth in the economy
Indian market kept its momentum despite many negative triggers like rising cases of COVID-19 infections across the globe, IMF predictions of contraction of about 5 percent in global economic growth, and on the domestic from, a standoff between India and China.
The number of Coronavirus cases has crossed 5 lakh in India, and the graph has been rising constantly, but with reopening of economic activities fueled hopes in the minds of investors that everything will be back to normal soon.
Both Sensex and the Nifty50 have rallied more than 30 percent each since March 24 when they hit a low.
The outlook still remains cautious in the short term, but what investors could do is to stay invested or increase their allocation towards defensives which could give the much-needed immunity shot to their portfolio.
“Defensives offer downside protection in demand downturns. These essential businesses proved to be a hedge against supply disruption as well. Besides the well-known defensives of pharma, healthcare and IT, there are some other categories like agri-inputs, power, telecom, freight rail and dairy which hold the potential to generate good returns in most of the scenarios,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.
“These sectors have a lower downside beta with the economy. Here are some of the stocks which are relatively more immune to COVID – 19 and hold a positive outlook in the near future,” he said.
A gradual reopening of the domestic economy has lifted sentiment. Rural reforms coupled with normal monsoon forecast amidst fall in interest rates are expected to support growth in the economy.
“Analysts are of the view that there are some green shoots like the rural economy and agriculture-focused plays are indicating improving prospects. Moreover, India's long-term fundamental stories for discretionary and consumption are intact, and sectors such as IT, Pharmaceuticals, Bank, Cement, Gas, Capital Goods, and insurance are expected to be the new leaders given the starting point of valuations, ownership, and performance,” SMC Global Securities said in a report.
“There are many companies that have been least impacted by the outbreak of coronavirus and their prospect looks promising ahead with the improvement in the economy. Investors can deploy a buy on dip strategy but in a staggered manner may be suggested for investors,” added the report.
We have collated a list of ten stocks which could give immunity to your portfolio:
Expert: Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor
Pharmaceuticals are one of the defensive stocks in the current crisis for obvious reasons. Glaxo is undergoing a restructuring, spinning off the consumer-health division that makes Advil and Panadol and has a strong pipeline of potential products on the way.
It has also started a two-year program to get it ready to set up two new leading companies in biopharma and consumer health care.
The firm witnessed accelerated growth in the anti-infectives, dermatology, and anti-pyretic therapy areas. Their major primary care brands grew at a better rate than the Indian pharmaceutical market.
All these factors are creating a positive outlook for the stock in the near future. The stock is expected to appreciate by 25% - 30% in the next six months’ time frame.
For the January-March quarter, the company has reported that its net profit rose by 24.82% in comparison to the March 2019 quarter.
Though the sales have seen a 4.98% drop, the company has reported a net profit of 45.23% for the year 2019-20. What is encouraging is that the company’s profit margins have been resilient due to a decline in gas prices.
Domestic gas prices have been revised downwards by 26% to $2.39 per million British thermal units for the half-year ending September 2020.
Lower gas costs and partial pass-through could boost margins further amid weak volumes in the financial year 2021. The stock is expected to appreciate around 25% in the next six months’ time frame.
Rallis India is India’s largest agrochemical company and a part of the Tata Group. The agriculture sector has fared well despite the Coronavirus pandemic.
COVID-19 has pushed the theme to stable sectors where agriculture is very positive. The measures are taken by the government, for the agriculture sector, could turn out to be very beneficial to companies like fertilizer and crop protection companies.
India is the world’s second-largest consumer of fertilizers. There are immense opportunities for the Indian market with China shutting down capacities and many agrochemicals going off-patent in the next few years.
Rallis has seen a 60% increase in share price since March lows. The stock is expected to appreciate around 20% in the next three months’ time frame.
The pandemic has led to a material impact on the healthcare industry and on the company’s healthcare services business operations due to severe travel-related restrictions impacting both employee movements and patient flows to the hospitals.
Their standalone pharmacy segmental revenues and business performance were not impacted during the lockdown and continue to show growth momentum. The company has undrawn credit lines of Rs 400 crore.
The company does not anticipate any risks related to the recoverability of receivables or supply chain-related bottlenecks. The stock is expected to appreciate by 15% - 17% in the next six months’ time frame.
HDFC Life Insurance Company Limited (HDFCLIFE):
Insurers in India are struggling to scale profitably amid the economic slowdown, but only a handful are able to innovate and thrive. One such firm is HDFC Life which has demonstrated 18 percent growth while processing over 21,000 annuity payouts and 95,000 transactions in the first 15 days of lockdown.
As a percentage of GDP, the insurance premium is in single digits. Though the percentage of sum assured is going up, it is low compared to that of developed countries. Therefore, the opportunity and scope for growth in life insurance remain immense.
The need for insurance across mortality, morbidity and longevity coverage remain high. The life insurer reported a net profit of Rs 311.71 crore in the March quarter, compared with Rs 364.01 crore in the same quarter a year ago. The stock is expected to appreciate around 20% in the next six months’ time frame.
Brokerage Firm: SMC Global Securities
Kotak Mahindra Bank is a full-service commercial bank. Going ahead, focus on strengthening the balance sheet and building a strong deposit franchise, maintaining risk-adjusted returns will benefit return ratios.
Kotak Mahindra Bank has been one of the most consistent performers over the years, driven by best in class return ratios & margin profile.
Given the government support, MSME advances would occupy significant space for incremental lending in the near-term. Based on all these factors, it is expected that the bank would see good growth going forward.
Thus, it is expected that the stock will see a price target of Rs.1576 in an 8 to 10-month time frame on a current P/BVx of 4x and FY21 BVPS of Rs.393.91.
SBI Life Insurance Company is one of the leading life Insurance companies in India. The Value of New Business (VoNB) eased 6 percent to Rs 540 crore in Q4FY2020, while VoNB margins improved to 18.7 percent in FY2020 from 17.7 percent in FY2019 and 18.3 percent in 9MFY2020.
The company has maintained healthy business growth, supported by strong growth in the premium collection and investment income. The management of the company expects the share of protection to be in double digits in the next three years on APE basis from 8 percent currently.
The Company is engaged in application development and maintenance, managed services, cloud computing and business process outsourcing to organizations in several sectors.
The Company continues to plan predictable, robust, and profitable growth in the future. Restructuring of leadership, strong compensatory scheme, and focused strategy for growth have been the key differentiating in the string performance of the company.
Strong order wins coupled with a healthy order pipeline would give on the visibility of revenue growth momentum.
KEC International is a global infrastructure engineering, procurement, and construction (EPC) major. Capex will be about Rs 100 crore for FY21 as against earlier planned Rs 200-250 crore.
The company has received approvals to resume work at a few domestic sites in a phased manner and has also applied for others. KEC’s overseas facilities viz., Mexico and Brazil were categorized under essential services and hence, have been operational over last month.
Going ahead, management expects healthy ordering from domestic as well as international markets especially from the African region, SAARC countries, and MENA regions.
KEI Industries is a cable manufacturing company. It offers high and low tension cables, control and instrumentation cables, house wires, and stainless steel wires, and high-technology specialty cables.
The company caters to Power, Industrial, Infra, Railways, Metro Rails, Oil & Gas, Upstream, Aluminum, Refineries, Steel, and Exports. It is working on increasing exports. It is exploring more business from Africa and the Middle East. KEI can be a major beneficiary of the increasing demand from the power, infrastructure, and real estate sector.
The company has been focusing on expanding its dealer network as this sales channel offers better margins. Institutional sale growth has been encouraging and management expects this division to grow in double digits, going forward.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.